Tariff Optimism and Robust Supply Undercut Coffee Rally

Arabica and robusta coffee futures are both facing downward pressure for a second consecutive day. December arabica coffee (KCZ25) slipped 0.55 (-0.14%), while January ICE robusta (RMF26) dropped 5 points (-0.11%), sliding to its lowest level in two weeks. The weakness reflects growing expectations around potential US tariff relief, particularly on imported coffee.

Tariff Cut Hopes Weigh on Prices

On Wednesday, Treasury Secretary Bessent signaled that “substantial announcements over the next couple of days” would address crops not produced domestically—with coffee explicitly mentioned. This statement has already begun to undercut market sentiment, as traders price in the possibility of reduced trade barriers on imported coffee supplies.

Brazilian Production Surge Adds to Pressure

StoneX’s initial forecast for the 2026/27 season projects Brazil will harvest 70.7 million bags of coffee, including 47.2 million bags of arabica—representing a 29% year-over-year increase. Recent precipitation patterns have also supported this outlook. Minas Gerais, Brazil’s largest arabica-producing region, received 72.1 mm of rain during the week ending November 7, approximately 160% of the historical average and well above levels that had sparked earlier drought concerns.

Vietnam’s Output Climbs Higher

Vietnam’s coffee dominance in robusta production continues to expand supply pressures. The nation’s January-October 2025 coffee exports jumped 13.4% year-over-year to 1.31 million metric tons. Production forecasts for 2025/26 project a 6% annual increase to 1.76 million metric tons (29.4 million bags), marking a four-year high. The Vietnam Coffee and Cocoa Association projected output could climb another 10% if favorable weather persists.

Mixed Signals from Inventory Trends

While rising supply undercuts prices, inventory movements present a countervailing force. ICE-monitored arabica stocks fell to their lowest level in 1.75 years at 404,930 contracts on Wednesday, while robusta inventories dipped to a 3.75-month low of 5,760 lots today. The 50% tariffs on US imports from Brazil have prompted American buyers to cancel new Brazilian coffee contracts, constraining domestic supplies since roughly one-third of America’s unroasted coffee originates from Brazil.

Global Supply Signals

The International Coffee Organization reported that global coffee exports for the current marketing year (October-September) declined marginally by 0.3% year-over-year to 138.658 million bags. Meanwhile, the USDA’s Foreign Agriculture Service projects 2025/26 world coffee production will expand 2.5% year-over-year to a record 178.68 million bags, driven by a 7.9% surge in robusta output to 81.658 million bags and offset by a 1.7% decrease in arabica production to 97.022 million bags.

Weather Remains a Wildcard

Climate conditions could alter this outlook significantly. The National Oceanic and Atmospheric Administration increased the probability of a La Niña weather pattern affecting the southern hemisphere from October through December to 71%, potentially bringing dry conditions that could damage Brazil’s 2026/27 crop. Brazil’s crop forecasting agency Conab previously cut its 2025 arabica coffee estimate by 4.9% to 35.2 million bags in September, with total Brazil 2025 production also reduced by 0.9% to 55.2 million bags.